n Derivatives watch | Non-banks

will be even fewer FCMs in the
future but it is equally possible
that banks may re-enter the
fray at some point – as non-banks might exit.

“Banks get in and out ofthe business we will still seethe ebb and flow of this,”he says. “Some will be back.Non-bank growth will alsoebb and flow. The one bigidea is that customers are notrelying on the sanctity of seg-regated funds like before. It’sdifferent – if you are strongBuy-side firms are undoubt-edly having a tougher timethan ever to access clearing andliquidity these days. But exploit-ing the vacuum is not quite aseasy as it sounds. nlooking for central clearingaccess. This allows investors tomaintain their own accountat the CCP without goingthrough the pooled segregatedaccount used by brokers.

“This may gain some trac-tion,” says Levens. “An institu-tion has an account with aCCP which is administered bya clearing member. This is anopportunity for us. It meansthat the client is not exposed toother clients in the segregatedpool. While the cost is higherthan participating in the com-mon segregated pool it affordsthe buy-side client the optionFor the future, the marketis likely to continue with thisstate of flux. Rees believes thereLevens, for one, admits thatGH Financials smaller balancesheet means that attracting atop-tier fund manager by size isunlikely right now.

“We don’t offer bonds orequities so have pieces of theirbooks,” says Levens. “Generallya lot of buy-siders keep theirwhole book with their primebrokers – where we win busi-ness is where the client can allo-cate it piecemeal.”There are, however, otherroutes for non-banks to expand.In recent years some buy-sideinstitutions have been look-ing to set up their own marketaccess to exchanges, independ-ent of their prime broker rela-tionships. It should give themmore commercial power, and agreater ability to access marketsand the data that they need toexecute their models.

At the same time, individual segregated accounts offer
opportunities to smaller non-bank brokers to tap into clients

“The biggest challenge that non-banksface in this effort is their lack of leverage”